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Cryptocurrency markets have reached new heights since their inception. Bitcoin has been the Flag-bearer of the Cryptocurrency industry since its inception in 2009. There are many cryptocurrencies that have made their way into the market. Cryptocurrencies other than Bitcoin are called Altcoins, short for Alternative coins.
Cryptocurrency trading has emerged in a way similar to that of Forex trading.
Forex enables traders to trade fiat currencies around the world against each other. Cryptocurrency trading takes a step further by allowing you to trade cryptocurrencies against fiat currencies!! Isn’t that Interesting??
We know how hard it is to venture into a new investment field without proper knowledge. Worry Not!! We are here with a complete guide to help you.
Basics to Buy and Trade Crypto
Buy or Trade
Buying and trading are two different aspects of the field of Finance! Buying a cryptocurrency requires you to pay the full price for ownership of the asset.
Trading is buying and selling cryptocurrencies within short periods by speculating price variations of these digital assets.
Cryptocurrency trading using financial derivatives, such as CFD(Contract for Difference) allows you to take leveraged positions that might be available only with higher capital.
Once you decide on Buying or Trading, the next step would be choosing the platform.
Choose Right Crypto Exchange or Brokerage
Choosing a platform to carry out transactions is one of the most important aspects of a beginner. You can use a licensed broker.
Although trading on a peer-to-peer basis is theoretically possible, it is not practically viable. Finding parties who would purchase or sell cryptocurrencies at a given time gets easy when you are on a platform connecting traders/investors with similar interests.
However, choosing a platform also includes considering various factors. Factors such as network security, the liquidity on the platform, and the Transaction fee charged. Most exchanges offer online wallets supported on platforms. It is very convenient for traders who has regular trades. However, the cryptocurrency exchanges hold private keys and can operate the assets in wallets.
There are two types of cryptocurrency exchanges that are well known.
- Centralized Cryptocurrency Exchanges – A group of people/companies administer these exchanges and are hosted on Centralized Ledgers, much like Central banks. They act as a third-party service provider and assets are only partially owned by the users.
- Decentralized Cryptocurrency exchanges – DEX are automated to the maximum extent and only act as a platform to connect buyers and sellers. They allow users to attain full ownership of the assets traded on their platform. Blockchain- a distributed ledger hosts DEX. Hence less fee is charged.
Choosing Crypto and Trading strategy
After all the above steps, you can continue choosing the crypto you want to Buy.
There are more than 4000 cryptocurrencies and tokens in the market that you can trade.
However, they may not be supported for trades on all the exchange platforms. Since there are so many cryptocurrencies, it is hard to choose one to invest in. The focus should be on the cryptocurrencies that are having liquidity and are quite popular. Also, while analysing the crypto, make sure it has technically strong consensus mechanism and transparency.
Some of the most traded and popular cryptocurrencies are listed below.
- Bitcoin (BTC)
- Litecoin (LTC)
- Ripple (XRP)
Now comes the strategy. Everybody wishes to be profitable with all the trades they want to carry out. You must have a good understanding of the subjects that may affect the prices of cryptos. Technical analysis plays a significant role in your portfolio.
Develop a habit of watching the trends and factors moving the markets. As you get a hold of trends, it gets easier to analyse and predict market directions over time.
Turning on profits
There are many ways to be profitable by trading a cryptocurrency. However, due to the extreme volatility in the markets, price action plays an important role.
Usually, cryptocurrencies become bullish when there is positive media coverage. Also, government regulations favouring the cryptocurrencies, statements by influential people and many such instances decide the volatility and market value. When the hype dies, the market appears pale or less volatile.
Patience and timing of your purchase and sale are key to make you profitable. A simple but effective strategy for beginners has always been “Buy low, Sell High”. You can later amplify your profits after gaining sufficient experience of how the market moves.
Since cryptocurrencies are extremely volatile assets, you need to monitor your HODLings(Holding). There are also losses involved. Hence due diligence is advised.
You can trade for the short term, and long term depending on the regulations set by your local governments.
Risk management is one of the factors that can make or break a trade. You must trade knowing the losses that you can afford. There are orders called stop-loss orders which play a key role in preventing losses on a bad day.
Also, going all in one a single cryptocurrency may turn out to be risky. Hence branch out, study the technicalities and distribute your crypto capital in parts of the top 5 cryptocurrencies.
Investments in Cryptocurrency should represent no more than 10% of your total investment capital as a beginner!!
Cryptocurrencies have come a long way since their inception in 2009. Their total market capitalization is estimated to be just above $1 Trillion. If you play your cards right, you may attain profitability, legitimately and safely.
Start investing/trading with small amounts and grow your investments according to the time and market trends.